Samsung Electronics' quarterly profit reached 19 times the same period last year, exceeding expectations as demand for memory chips needed for artificial intelligence data centers surged. Samsung shares fell as much as 7.9% in Seoul as investors had largely priced in the chipmaker's sizable profit margins, driven by a historic expansion of global AI infrastructure. South Korea's largest company reported preliminary operating profit of 89.4 trillion won ($58 billion) in the three months to the end of June, about 6% higher than expected; revenue more than doubled to 171 trillion won.
As the world's largest memory chip maker, Samsung's performance has attracted much attention as investors seek to justify huge investments and sky-high valuations related to AI. Global semiconductor shares soared to record highs earlier this year but have since descended into turmoil as concerns about increased competition, possible overcapacity and whether hundreds of billions of dollars in investment plans will pay off take hold.
Samsung will release its full financial statements around the end of the month, which will include net profit and breakdown by division.
"We will be looking for signs to judge whether this means the company's ability to generate annual free cash flow has taken a sustainable step forward," said Brian Cho, portfolio manager at Causeway Capital Management. He also said that he would pay attention to management's shareholder return policy.
Recommended reading: SK Hynix and Micron reported good news this week, consolidating the status of memory chips as an AI star sector
Executives including Nvidia CEO Jensen Huang and OpenAI COO Brad Lightcap have said that the shortage of memory chips remains a key bottleneck in AI development. Manufacturers are prioritizing the production of high-end memory to meet the needs of data centers, resulting in an insufficient supply of traditional memory.
Analysts expect the shortage to last at least until the end of 2027, giving Samsung and its rivals SK Hynix and Micron strong pricing power. HSBC said that this has led to the average selling price of dynamic random access memory (DRAM) rising by more than 40% in the second quarter, and the price of NAND flash memory rising by more than 50%.
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